Screw the experts, screw the planners, screw all those smart people who told you that you shouldn’t the time the market. Timing the market is the name of the game! Why wouldn’t you use all of the available information to your advantage? Why buy shares each and every month if the sky is falling? While I respect the thinking that the averages work out over the long run, reality is that no one lives in the long run and you can’t keep throwing good money after bad. If something is a bad investment, the experts say forget the sunk cost and cut loose. So if the stock market is a bad investment, why do they argue that you should keep investing when the smart money says you should take a break?

(Click to continue reading…)

In the Summer 2008 issue of In The Vanguard, a newsletter The Vanguard Group sends out to its customers, the newsletter interviews two outgoing managers of their Wellesley Income Fund: Earl McEvoy and Jack Ryan. Both have years and years of experience in investing, managing several other funds, and the interview was enlightening.

Here’s my favorite question and its answer by Ryan (the whole interview):

There’s an old blessing (or curse), “May you live in interesting times.” You’ve guided your funds through some very interesting times. Which stand out?

Mr. Ryan: I think we’ve always lived in interesting times. For example, if you think back to the 1970s, before we were Vanguard portfolio managers, we had a major banking crisis. New York City was going bankrupt. Consolidated Edison cut its dividend—and electric utilities had never cut dividends. We had a recession, and the rise of the “Nifty Fifty” stocks. So we’ve always had interesting times. What’s different today, perhaps, is that there is more financial news coverage, which can make the situation of the moment feel very intense. (emphasis mine)

It’s interesting Ryan says that because its something I’ve come to learn after reading of the turbulence in the 70s and 80s. I’ve been listening to Alan Greenspan’s Age of Turbulence and things, at least numerically, seemed far worse in prior eras. We cry about a 20% drop since the highs of last October, but on Black Monday, October 19, 1987, the stock market fell 22.6% (508 points!). We talk about foreclosures, job losses, and inflation… all of which were far worse in previous bad economic times but the US economy endured. In the S&L crisis, 747 banks failed!

The sky isn’t falling, things aren’t that bad, we just live in interesting times and the media is making the most of it. Here’s what both managers believe is in store for the future, as well as some advice:

Economic news has been downbeat lately. What is your outlook for the U.S. economy?

Mr. McEvoy: With respect to the Federal Reserve, I think they are finally accomplishing the type of yield curve they want. If the Fed can keep short rates low, banks will be able to shore up their capital by borrowing short and lending a little bit longer. However, I don’t see how we avoid an increase in the inflation rate, which will put pressure on long-term bonds.

Mr. Ryan: The outlook is challenging, but if you’re thinking long-term, it’s an excellent opportunity to look for companies or mutual funds that are well-positioned for the future when the economy does recover. This is exactly when you want to increase your investment exposure.

The opportunities for investing are just as great today as ever. The world continues to develop. People want to do well. They want to grow their companies. They want to get ahead. There is a lot of wealth in the system that will be invested. The opportunities are there. It’s just a matter of studying, doing some work, trying to improve your judgment, and taking advantage of opportunities as they present themselves.

This week I had the pleasure of chatting with Tess Vigeland of American Public Media’s Marketplace Money show, BeingFrugal.net’s Lynnae and Steve of Brip Blap for an upcoming segment on personal finance bloggers. It was a lot of fun and an honor to participate in a show that I listen to every week (I listen to the Morning Edition and daily show every day, Money is only on during the weekends) and a lot of fun to chat with Lynnae and Brip Blap . I don’t know when it’ll appear but I’ll keep you all posted.

Why not start the roundup right with a couple posts from Lynnae and Steve? Steve’s latest post is about work life balance. We deal with it here as well, my wife has a 40 minute commute that artificially inflates her “at work” time by an hour and a half each way. Fortunately her office is moving to a new facility five minutes away, but for many the answer isn’t that easy.

Lynnae has a great vacation tip for her Tightwad Tuesday series: rent a vacation home. You pay a little more but you get a lot more than if you go the regular hotel route.

Interviews!
I also had a little three question interview with Shark Investor in which I bared my soul, shared all the secrets I knew, and gave away money. I actually didn’t do any of that but I did answer three questions and had a good time doing it, go check it out.

Preparation Is Crucial
What separates the people who are financially successful and those that find themselves always mired in debt? Preparation. Money Saving Mom is a blog I just discovered that I absolutely love. Besides compiling all the great couponing deals in an easy to read manner, she’s also what I consider financially successful. I have no idea what her bank account balance is but it’s not important because of how she responded to a negative comment on her site. A commenter lambasted her about van and how she should just buy a new car. She could buy a new car, but she hadn’t planned or prepared for it… so it’s not going to happen. “But here’s the deal: while we have money in our bank account, we don’t have money saved or allotted for a new vehicle or even a used vehicle.” That thinking separates those that are financially successful and those mired in debt.

Do Not Mix Business With Friends
A post on Alpha Consumer caught my eye this week, it was a sad story of a friendship gone wrong in a business transaction. If you want a legal perspective on the case, Kim called on Kathryn Dickerson, a partner at Smolen Plevy, a Vienna, Va., law firm.

If you want my opinion, it’s that if you mix friendship with business, be very clear in expectations and get everything in writing to avoid conflicts. I’ve heard many a story where friends thought there was an understanding… until there wasn’t, because nothing was written down and memories fade.

Unlimited Usually Doesn’t Work Out
We, as human beings, are really bad at predicting usage and so this Consumerist article about NYC Unlimited Metrocards, which is highlighting a NYTimes article, isn’t that surprising. We usually overestimate how much we plan on using something and so the a la carte option, of paying as you go, may usually work out better than the unlimited option. Ahhh we are so predictably irrational!

Here are a few other great posts in the blogosphere you should check out:

• Lazy Man is selling his endorsement of Prosper loans to the highest bidder! Buy his endorsement and pay a lower rate, it’s totally worth it! (it’s a joke)
• SVB writes about the MPG illusion, fuel efficiency is on everyone’s mind with high gas prices.
• Nickel discusses freezing your credit, a great preventative measure if you don’t foresee needing credit (or don’t mind the hassle).
• Flexo wonders if we’re turning it around or is our market optimism a little early. Personally I think it’s early, all these CDOs still have to get unraveled and considering how corporate accounting works…
• I haven’t seen it yet but guess what Kung Fu Panda can teach you about becoming a millionaire!
• Need something cheap to do this weekend? How about this list of 100 free things to do this weekend from The Simple Dollar?
• Last but not least, Jeremy of GenXFinance writes from the front lines: Changing Your Risk Tolerance Based on a Bear Market.

Have a great weekend everyone!

I had a meeting with my accountant last week to discuss some business related items and we got on the topic of insurance, specifically life and disability insurance. He told me that his personal philosophy was to keep insurance and investments separate. The reason for this is that when you start mixing insurance and investment, you start muddying the waters and things become much more difficult to keep track of.

When it comes to insurance, he buys term life insurance. Term life insurance is the simplest type of insurance, you pay a premium for a set period of time and they pay out if you die. There is not an investment component and it’s a very simple concept. When I looked at four types of life insurance (term, whole, universal, variable), it confused me to no end. Generic terms, that are barely descriptive because they are so generic, tied to specific plans really mess me up.

Is this the most financially efficient method? I don’t know enough to know. Is it a clear, easy to understand, easy to execute plan with little room for error? I believe so. I prefer a plan I fully understand and can execute without problems over one that is half a percentage point more efficient that I could potentially screw up.

This is the final installment to the Trisha Allen’s Guide to Real Estate Investing.

As a reference, the Active/Passive measure is a five star scale with one-star being the most active and five-stars being the most passive.

Real Estate Investment Trusts (REIT’s)

A Real Estate Investment Trust is an entity that invests in real estate–usually large commercial cashflowing rentals. When you invest in a REIT, you’re not buying real estate—you’re buying stock in a company (a trust, actually) that buys and manages real estate. Typically, you’ll receive dividends. But, dividends from REIT’s are taxed at ordinary income tax rates, unlike stock dividends. So, REIT’s may not be a great choice for people in higher tax brackets.
Entrance Difficulty Level: Easy
Active/Passive: ****

Tax Lien Certificates

Tax liens are imposed on properties when property taxes go unpaid for an extended amount of time. And, until the overdue taxes, accrued interest, and fees are paid to the local government, the tax lien will stay with the property. Anyone purchasing the property will be subject to the lien. In many states, private investors can purchase the liens themselves as tax lien certificates—which then transfers the government’s interest and rights over the property to the investor! The rules vary from state to state. But, in some states, when you purchase a tax lien certificate, you receive the right to collect the interest on the unpaid taxes. The interest rates can range from 8% to 50% per year, depending on the state. Also, depending on the state, if the taxes go unpaid for long enough, the tax lien certificate purchaser can either sell the property or the property will be auctioned off for them to collect the total amount of interest and fees.
Entrance Difficulty Level: Easy
Active/Passive: ***

Note: I did not include a category regarding purchasing property in hopes of capitalizing on future appreciation. In my mind, that’s not investing—it’s gambling! If the property doesn’t cashflow well or can’t be sold for more money than was put into it, a buyer is taking a HUGE risk that could result in selling at a significant loss or losing the property to foreclosure.

An educated, careful investor has no reason to be afraid of investing in real estate. With an education behind you, you’ll be able to spot opportunities as they come along—sometimes when no one else can! Much of the knowledge you’ll need can be found for free by investigating online resources like blogs, forums, and even reading books from the library or while sitting in the café at your local bookstore. Now, don’t just read one motivational book and think you’re ready! Take the time to get to know your target market, cover your bases, and you should do just fine.

I’ve done real estate investing successfully since 2003 and have blogged about it since 2005. A word to the wise: before you invest, check with an attorney and a CPA to evaluate your goals, investing options, and the laws in your state.

This is the third edition to the Trisha Allen’s Guide to Real Estate Investing, written by Trisha Allen of Building an Empire.

As a reference, the Active/Passive measure is a five star scale with one-star being the most active and five-stars being the most passive.

Buy-And-Sell Investments

Commonly known as “flipping” or “resaling”, purchasing a residential or commercial property to sell for profit can be very lucrative for you or absolutely disastrous! You can perform every type of inspection known to man but still not be able to anticipate every “gotcha” that comes your way! With real estate markets plummeting in certain areas of the country, flipping has become a risky business indeed. The idea behind this type of investing is to benefit from the profit made by selling a property for more than you paid for it, plus any expenses you incurred during your ownership. Land can be flipped for a profit as well.

Fix-And-Flips - After purchasing a property for the right amount at the right time, performing the right fixes for the right amounts, and selling at the right price at the right time, an investor can make a killing! (That’s a lot of right’s that could go wrong!) Fix-And-Flips take a lot of know-how, money for repairs and upgrades, intimate familiarity with the local real estate market, good project management skills, and a little dash of luck to boot. There’s nothing passive about this type of investing, either. Don’t be fooled into thinking that you can hire a contractor and trust him or her to get the job done right, on budget, and on time! But, with greater risk, comes greater rewards…maybe.
Entrance Difficulty Level: Difficult
Active/Passive: *

Wholesaling – Frequently an entry point for beginner investors, wholesaling involves purchasing a property or putting it under contract at a discounted price while the wholesaler locates a buyer to purchase it from them for a higher price. The property is flipped immediately after purchase—without any upgrades being performed–or possibly before the closing even occurs! The wholesaler can accomplish this by either holding a double closing (which is when two closings happen back-to-back from seller to buyer, then from the first buyer to the next buyer) or by assigning their position on the contract to the next buyer for a fee. The biggest risks for wholesalers is being stuck with a property they cannot sell for a profit, or losing their earnest money if they cannot locate a buyer and decide not to close on the property at all.
Entrance Difficulty Level: Easy
Active/Passive: *

Final Edition: REITs & Tax Liens

I’ve done real estate investing successfully since 2003 and have blogged about it since 2005. A word to the wise: before you invest, check with an attorney and a CPA to evaluate your goals, investing options, and the laws in your state. You can read more about my own experiences at TrishaAllen.com.

I could only avoid the siren song of $4.95 trades for so long, here are my opinions of TradeKing in 2,144 words and 4 screenshots. Last week, I joined the masses and opened a TradeKing brokerage account. I did so partly because I wanted to understand the process and answer some of the emails I’ve been receiving, and partly because I was impressed by their Options Education Center and wanted to dip my toe in the waters of something I never really understood. I had heard that TradeKing offers the easiest way to pull off multiple options related transactions (because they’re often used as hedges) at once. More on that later, let’s get to the basics.

(Click to continue reading…)

This is the second edition to the Trisha Allen’s Guide to Real Estate Investing.

As a reference, the Active/Passive measure is a five star scale with one-star being the most active and five-stars being the most passive.

Buy-And-Hold Investments

Congratulations, you’re a landlord! There are tenants to be found; leases to negotiate and sign; regular property maintenance issues and emergencies to be handled; possible evictions to be filed; then taxes and insurance to be paid. A property manager will charge a percentage of the monthly rents to perform many of these tasks. Finding a good property manager falls on your shoulders, however. Then, you’ll manage the property manager, receive the monthly rent, and verify the math on the monthly statements. The idea behind this type of investing is to benefit from cashflow (when a property produces profits above and beyond the mortgage payments, insurance, taxes, property management fees, repairs, HOA fees, and other expenses). Bare land can even be leased out for cashflow, although it doesn’t provide tax benefits like improved property. Overall, landlording’s not a bad gig when everything goes well!

Residential Rentals – Residential rentals can be single-family homes, mobile homes, duplexes, triplexes, or quadplexes. Anything larger is considered commercial where financing is concerned. Residential rentals tend to be predominantly the beginner’s choice investment type due to the affordability of the property and downpayment, the availability of financing, and abundance of educational resources.
Entrance Difficulty Level: Moderate
Active/Passive: ***

Commercial Rentals - Commercial rentals can be apartments with five units or more, shopping centers, retail, offices, industrial/warehouses, even mobile home parks. Believe it or not, commercial rentals tend to be more passive investments than residential rentals! Property managers are easier to find and manage. Your property may be the ONLY property they manage, or at least make up a significant portion of their inventory. Other professionals and vendors tend to find your business more valuable and may be willing to bend over backwards to keep you. Conversely, contractors may think you’re loaded since you own a big property, and may charge you exorbitant rates for upgrades and repairs. Of course, you can have your property manager collect multiple bids to keep costs low. It probably goes without saying that commercial properties tend to be much more expensive to purchase than residential. Also, “how-to” resources are much harder to find, which makes it sometimes necessary to rely strictly on what a commercial mortgage broker, commercial Realtor, attorney, or CPA is telling you. In other words, you may find that you’re re-inventing the wheel at times!
Entrance Difficulty Level: Difficult
Active/Passive: ****

Next Edition: Buy and Sell Investments

I’ve done real estate investing successfully since 2003 and have blogged about it since 2005. A word to the wise: before you invest, check with an attorney and a CPA to evaluate your goals, investing options, and the laws in your state.